FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
x Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1994
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period ended from _____ to _____
Commission File Number 0-10180
Computer Associates International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2857434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Computer Associates Plaza
Islandia, New York 11788-7000
(Address of principal executive offices) (Zip Code)
(516) 342-5224
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
Title of Class Shares Outstanding
Common Stock November 1, 1994
par value $.10 per share 160,828,311
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I. Financial Information: Page No.
Item 1. Consolidated Condensed Balance Sheets -
September 30, 1994 and March 31, 1994 . . . . . . . . 1
Consolidated Statements of Income -
Three Months Ended September 30, 1994 and 1993 . . . . 2
Six Months Ended September 30, 1994 and 1993 . . . . . 3
Consolidated Condensed Statements of Cash Flows -
Six Months Ended September 30, 1994 and 1993 . . . . . 4
Notes to Consolidated Condensed Financial Statements. . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 8
PART II. Other Information:
Item 4. Submission of matters to a Vote of Security Holders . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 12
<PAGE>
<TABLE>
Item 1:
Part I. FINANCIAL INFORMATION
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
(In thousands)
September 30, March 31,
1994 1994
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents . . . . . $ 53,955 $ 133,127
Marketable securities . . . . . . . 222,904 235,071
Trade and installment accounts
receivable - net. . . . . . . . . . 664,274 594,854
Inventories and other current
assets . . . . . . . . . . . . . . 39,445 36,169
TOTAL CURRENT ASSETS 980,578 999,221
Installment accounts receivable,
due after one year - net . . . . . 781,643 626,923
Property and equipment - net . . . . 356,800 304,590
Purchased software products - net. . 432,801 259,290
Excess of cost over net assets
acquired - net . . . . . . . . . . 300,832 201,665
Investments and other noncurrent
assets . . . . . . . . . . . . . . 100,717 99,916
TOTAL ASSETS $2,953,371 $2,491,605
LIABILITIES AND STOCKHOLDERS' EQUITY:
Loans payable - banks . . . . . . . $ 392,000 $ 50,000
Other current liabilities . . . . . 579,447 498,622
Long-term debt and other . . . . . 54,670 71,381
Deferred income taxes . . . . . . . 384,926 298,914
Deferred maintenance revenue . . . 333,068 329,555
Stockholders' equity . . . . . . . . 1,209,260 1,243,133
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,953,371 $2,491,605
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
(In thousands, except per share amounts)
For the Three Months
Ended September 30,
--------------------
1994 1993
---- ----
<S> <C> <C>
Product revenue and other related income . . . $ 443,998 $ 343,463
Maintenance fees . . . . . . . . . . . . . . . 179,342 173,505
TOTAL REVENUE 623,340 516,968
Costs and expenses:
Selling, marketing and administrative . . . 256,114 235,623
Product development and enhancements . . . . 54,146 51,744
Commissions and royalties . . . . . . . . . 30,065 23,033
Depreciation and amortization . . . . . . . 69,809 68,973
Interest expense - net . . . . . . . . . . . 2,924 817
TOTAL COSTS AND EXPENSES 413,058 380,190
Income before income taxes . . . . . . . . . . 210,282 136,778
Provision for income taxes . . . . . . . . . . 79,907 49,240
NET INCOME $ 130,375 $ 87,538
Net income per share of Common Stock . . . . $ .78 $ .51
Weighted average number of shares used in
computation . . . . . . . . . . . . . . . . . 168,198 171,707
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
(In thousands except per share amounts)
For the Six Months
Ended September 30,
-------------------
1994 1993
---- ----
<S> <C> <C>
Product revenue and other related income . . . $ 750,486 $ 594,909
Maintenance fees . . . . . . . . . . . . . . . 349,485 345,441
TOTAL REVENUE 1,099,971 940,350
Costs and expenses:
Selling, marketing and administrative . . . . 507,685 487,329
Product development and enhancements . . . . 104,384 101,574
Commissions and royalties . . . . . . . . . . 50,411 43,210
Depreciation and amortization . . . . . . . . 113,742 121,196
Interest expense - net . . . . . . . . . . . 2,198 2,217
Purchased research and development . . . . . 249,300
TOTAL COSTS AND EXPENSES 1,027,720 755,526
Income before income taxes . . . . . . . . . . 72,251 184,824
Provision for income taxes . . . . . . . . . . 27,455 66,537
NET INCOME $ 44,796 $ 118,287
Net income per share of Common Stock . . . . . $ .27 $ .69
Weighted average number of shares used in
computation . . . . . . . . . . . . . . . . . 168,064 171,757
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
(In thousands)
For the Six Months
Ended September 30,
--------------------
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . $ 44,796 $118,287
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . 113,742 121,196
Provision for deferred income taxes . . . . . . 21,540 11,443
Charge for purchased research and development. . 154,500
Increase in noncurrent installment accounts
receivable - net . . . . . . . . . . . . . . . (122,909) ( 96,758)
Decrease in deferred maintenance revenue . . . . ( 9,514) ( 27,008)
Foreign currency transaction loss
before taxes . . . . . . . . . . . . . . . . . 2,620 18,091
Changes in other operating assets and
liabilities, excludes effects of acquisitions . ( 44,238) 44,322
NET CASH PROVIDED BY OPERATING ACTIVITIES 160,537 189,573
INVESTING ACTIVITIES:
Acquisitions, primarily purchased software,
marketing rights and intangibles . . . . . . . . (353,247) ( 318)
Purchase of property and equipment . . . . . . . . ( 33,370) ( 24,572)
Purchase of noncurrent marketable securities . . . ( 203)
Decrease (increase) in current marketable
securities . . . . . . . . . . . . . . . . . . . 9,047 ( 84,940)
Capitalized development costs . . . . . . . . . . ( 8,038) ( 7,542)
NET CASH USED IN INVESTING ACTIVITIES (385,608) (117,575)
FINANCING ACTIVITIES:
Decrease in long-term debt - net . . . . . . . . . ( 82,458) ( 4,540)
Increase (decrease) in loans payable-banks - net . 342,000 ( 25,000)
Dividends Paid . . . . . . . . . . . . . . . . . . ( 16,172) ( 11,643)
Exercise of common stock options/other . . . . . . 8,133 15,464
Purchases of treasury stock . . . . . . . . . . . (109,027) ( 68,877)
NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES 142,476 ( 94,596)
DECREASE IN CASH AND CASH EQUIVALENTS
BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 82,595) ( 22,598)
Effect of exchange rate changes on cash . . . . . . 3,423 ( 2,226)
DECREASE IN CASH AND CASH EQUIVALENTS ( 79,172) ( 24,824)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 133,127 79,483
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 53,955 $ 54,659
</TABLE>
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended September 30, 1994
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in Computer Associates
International, Inc.'s (the "Registrant" or the "Company") Annual Report on
Form 10-K for the fiscal year ended March 31, 1994.
Net Income per Share: Net income per share of Common Stock is computed by
dividing net income by the weighted average number of common shares and any
dilutive common share equivalents outstanding. Fully diluted net income per
share is the same or not materially different from net income per share.
Statements of Cash Flows: For the six months ended September 30, 1994 and
1993, interest paid was $9 and $8 million, respectively, and income taxes paid
were $111 and $54 million, respectively.
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE B -- ACQUISITIONS
On June 22, 1994, the Company acquiried 98% of the issued and outstanding
Common Stock of The ASK Group, Inc. ("ASK"), and on September 20, 1994, merged
ASK into one of its wholly owned subsidiaries. The aggregate cost of acquiring
the Common Stock of ASK was approximately $314 million. The purchase price was
provided from existing cash balances and from a revolving credit agreement with
a group of banks. ASK was primarily in the business of developing, marketing
and selling computer-based relational database management systems, data access
and connectivity products, manufacturing and financial software application
tools and provided related consulting and support services. The acquisition
was accounted for as a purchase. The results of ASK's operations have been
combined with those of the Company since the date of acquisition.
In conjunction with the purchase of ASK, the Company recorded an after-tax
charge against earnings of $154 million relating to the write-off of purchased
research and development technology that had not reached the working model
stage and has no alternative future use. Had this one-time charge not been
taken during the quarter ended June 30, 1994, net income for the six month
period ended September 30, 1994 would have been $199 million, or $1.19 per
share.
The following table reflects pro forma combined results of operations
(unaudited) of the Company and ASK on the basis that the acquisitions had
taken place and the related one-time charge, noted above, was recorded at the
beginning of the fiscal year for each of the periods presented:
<TABLE>
<CAPTION>
(In thousands, expect per share amounts)
For the Six Months For the Three Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . $1,141,539 $ 1,107,690 $ 631,175 $ 584,063
Net income (loss) . . . . 9,497 ( 89,652) 135,231 56,190
Net income (loss) per
Common Share . . . . . . $ .06 $( .54) $ .80 $ .33
Shares used in
computation . . . . . . 168,064 166,165 168,198 171,707
</TABLE>
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE B -- ACQUISITIONS (continued)
The following table reflects pro forma combined results of operations
(unaudited) of the Company and ASK on the basis that the acquisitions had taken
place at the beginning of the fiscal year for each of the periods presented and
excludes the effect of the one-time after-tax charge of $154 million:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
For the Six Months For the Three Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . . $1,141,539 $ 1,107,690 $ 631,175 $ 584,063
Net income . . . . . . . . 163,997 64,848 135,231 56,190
Net income per
Common Share . . . . . . . $ .98 $ .38 $ .80 $ .33
Shares used in
computation . . . . . . . 168,064 171,757 168,198 171,707
</TABLE>
In management's opinion, the pro forma combined results of operations are not
indicative of the actual results that would have occurred had the acquisition
been consummated at the beginning of fiscal year 1994 or of future operations
of the combined companies under the ownership and operation of the Company.
<PAGE>
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue:
Total revenue in the quarter ended September 30, 1994 increased by 21%, or $106
million, over the prior year's comparable quarter. The increase was
attributable to product revenue growth primarily in the midrange platform. The
midrange environment experienced year over year growth of 177% due to continued
strong acceptance of CA-Unicenter now available on several platforms and the
integration of the ASK/Ingres products. Maintenance revenues increased by $6
million, primarily due to the acquisition of ASK. Price changes did not have a
material impact during either quarter.
Costs and Expenses:
Selling, marketing and administrative expenses as a percentage of total revenue
decreased to 41% in the September 1994 quarter from 46% in the September 1993
quarter. This percentage reduction between the two comparable quarters
reflects the higher revenue achievement without a proportionate increase in
total fixed, variable and administrative costs. Development expenditures
capitalized during the fiscal 1995 quarter totaled $5 million, and $5 million
of previously capitalized software development expenditures was amortized in
the quarter. Commissions and royalties as a percentage of revenue increased
slightly in the September 1994 quarter over the prior year's comparable period,
due primarily to the aforementioned revenue increase. Depreciation and
amortization expense in the September 1994 quarter increased by $1 million
over the September 1993 quarter. However, during the September 1994 quarter,
the increased amortization of purchased software and excess cost over net
assets acquired associated with the ASK acquisition was approximately $27
million. This incremental quarterly charge will continue throughout the
remainder of fiscal year 1995. During the September 1993 quarter, there were
$17 million of charges for the reasessment of the current carrying value
of several purchased software products, as well as $7 million associated with
the ADR acquisition neither of which are included in the current quarter. In
the quarter ended September 1994, net interest expense increased by $2 million
primarily as a result of increases in loans payable to banks and higher average
interest rates.
<PAGE>
Item 2: (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating Margins:
Pre-tax income for the quarter ended September 1994 exceeded the prior year's
comparable quarter by $73 million, or 54%, due to the higher revenue
achievement and marginal increases in costs and expenses. Similarly, pre-tax
income as a percentage of total revenue increased to 34% from 26% in the
comparable prior year period as a result of limited expense growth and higher
revenue achievement. The reduced availability of foreign tax credits was
primarily responsible for the increase in the consolidated effective tax rate
of 38% from 36% in the September 1993 quarter.
Operations:
The Company has traditionally reported lower profit margins in the first two
quarters of each fiscal year than those experienced in the third and fourth
quarters. As part of the annual budget process, management establishes higher
discretionary expense levels in relation to projected revenue for the first
half of the year. Historically, the Company's combined third and fourth
quarter revenues have been greater than the first half of the year, as these
two quarters coincide with the clients' calendar year budget periods and the
culmination of the Company's annual sales plan. These historically higher
second half revenues have resulted in significantly higher profit margins
since total expenses have not increased in proportion to revenue. However,
past financial performance may not be indicative of future performance,
particularly in view of the uncertainties associated with assimilation and
integration of the ASK acquisition.
The Company's near term operating results may be affected by a number of other
factors, including, but not limited to: uncertainties relative to global
economic conditions; market acceptance of competing technologies; the
availability and cost of new solutions; the Company's ability to successfully
maintain or increase market share in its core business while expanding its
product base into other markets; the strength of its distribution channels;
the Company's ability to effectively manage fixed and variable expense growth
relative to revenue growth; and the Company's ability to effectively integrate
acquired products and operations.
<PAGE>
Item 2: (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term marketable securities
decreased by $84 million to $277 million during the quarter ended September
1994. This decrease was primarily attributable to expenditures in excess of
$60 million for various shutdown costs related to the ASK acquisition. At
September 30, 1994, $392 million was outstanding under the Company's revolving
credit agreement with net borrowings of $12 million during the quarter ended
September 30, 1994. It is expected that existing cash, cash equivalents,
short-term marketable securities, the availability of short-term borrowings
under committed and uncommitted credit lines as well as cash provided from
operations will be sufficient to meet anticipated cash operating requirements.
During the quarter ended September 30, 1994, the Company added one million
shares of Common Stock costing $44 million to its treasury under its previously
announced open market repurchase program. The Company has authorization to
repurchase an additional ten million shares under its current program.
The Company's capital resource requirements as of the end of September 1994
consisted of lease obligations for office space, computer equipment, mortgage
or loan obligations and amounts due as a result of product and company
acquisitions. The Company intends to meet these commitments and other
foreseeable needs from its available cash as outlined above.
<PAGE>
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
(a) Annual Meeting of Stockholders held on
August 10, 1994
(b) The Stockholders notice to fix the number of
Directors at eight and elected Directors for the
ensuing year as follows:
Affirmative Authority
Name Votes Withheld
Russell M. Artzt 137,562,336 650,268
Willem F.P. de Vogel 137,987,327 225,277
Irving Goldstein 137,986,039 226,565
Richard A. Grasso 137,892,003 320,401
Shirley Strum Kenny 137,982,710 229,894
Sanjay Kumar 137,562,164 650,440
Edward C. Lord 137,988,201 224,403
Charles B. Wang 137,612,922 599,482
(c) The Stockholders voted to approve the Company's Annual
Incentive Compensation Plan :
Affirmative Votes 116,222,149
Negative Votes 20,914,360
Abstentions 1,076,095
The Stockholders voted to ratify the appointment of
Ernst & Young as the Company's independent
auditors for the fiscal year ending March 31, 1995:
Affirmative Votes 137,570,630
Negative Votes 208,135
Abstentions 434,640
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The registrant filed a Report on Form 8-K
on or about July 1, 1994, reporting an event
under Item 2, providing financial statements
and pro forma financial information in
accordance with Items 7(a) and (b) and
furnishing exhibits under Item 7(c). The date
of such report was June 23, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
COMPUTER ASSOCIATES INTERNATIONAL, INC.
Dated: November 3, 1994 By:/s/Sanjay Kumar
----------------------------
Sanjay Kumar, President
and Chief Operating Officer
Dated: November 3, 1994 By:/s/Peter Schwartz
----------------------------
Peter Schwartz
Sr. Vice President - Finance
(Chief Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1994
<CASH> 53955
<SECURITIES> 222904
<RECEIVABLES> 1445917
<ALLOWANCES> 0
<INVENTORY> 39445
<CURRENT-ASSETS> 980578
<PP&E> 356800
<DEPRECIATION> 0
<TOTAL-ASSETS> 2953371
<CURRENT-LIABILITIES> 971447
<BONDS> 54670
0
0
<COMMON> 0
<OTHER-SE> 1209260
<TOTAL-LIABILITY-AND-EQUITY> 2953371
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<CGS> 0
<TOTAL-COSTS> 1027720
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</TABLE>
